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Recent Trends in Retirement Income Choices at TIAA: Annuity Demand by Defined Contribution Plan Participants
Jeffrey R Brown
University of Illinois and NBER
James Poterba MIT and NBER
David P Richardson
TIAA Institute
September 2019
ABSTRACT
This paper uses administrative data from TIAA, one of the largest defined contribution retirement plan providers in the U.S., to document time series variation in participant choices regarding retirement income and cross-sectional differences among participants. The fraction of first-time retirement income claimants who selected a life-contingent annuitized payout stream dropped from 54% in 2000 to 19% in 2017. Over the same period, there was a sharp increase – from 9% to 58% - in the fraction of retirees making no withdrawals until the age at which they needed to begin required minimum distributions (RMDs). Among those who made an initial income selection before age 70, the annuitization rate was higher, and the decline in annuitization rates was more modest, than for those who made this selection at an older age. Those who began drawing income after age 70 were like to withdraw only the amount needed to meet the RMD. The paper also explores two potential explanations for the drop in annuitization rates since 2000: falling nominal interest rates and rising ages of income-claiming. Nominal interest rates are a key determinant of payout-per-premium dollar on newly-purchased annuities, and annuitization decisions are sensitive to this ratio. The 10-year Treasury interest rate declined by over three percentage points during the sample period. In addition, the average retirement age of TIAA participants increased by more than 1.5 years, and the average age of first-time income draws rose by nearly five years. Annuitization is much more likely among those who begin taking income before age 70, so later claiming may translate into less annuity demand. Both falling interest rates and delayed claiming appear to contribute to the observed decline in annuitization. Acknowledgements: We thank Quentin Graham and Tai Kam for outstanding research assistance and Melinda Morrill for very helpful comments. Brown is a trustee of TIAA, Poterba is a trustee of CREF and the TIAA-CREF mutual funds, and Richardson is the Managing Director of Research at the TIAA Institute; TIAA is the provider of retirement income services that made the data available for this project. The research reported in this paper was performed pursuant to grant RDR18000003 from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, TIAA, or the NBER. Neither the U.S. government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this paper. Reference herein to any specific commercial product, process, or service by tradename, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation, or favoring by the U.S. government or any agency thereof.
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The Baby Boom cohort is now transiting from its prime working years to retirement age, and a
rising fraction of retirement-age households have substantial accumulations in defined contribution (DC)
pension plans. These plans typically provide their participants with substantial discretion about
retirement payout strategy. Researchers and practitioners are increasingly shifting their attention from
the asset accumulation phase of the retirement process to the draw-down phase, when participants
must make decisions about the rate at which to remove assets from their DC account and about
whether to insure themselves against longevity risk and the risk of late-life medical expenditures. The
demand for life-contingent annuity products attracts special attention because of their central role in
many optimizing models of retiree behavior, despite the fact that the market for such annuities,
whether inside or outside a DC plan, is small. Vanguard (2017) reports that only 12% of the DC plans it
administers, covering 15% of plan participants, provide participants with an annuity option at
retirement. Even when annuity options are available, they are chosen by relatively few participants.
Defined contribution plan participants who choose not to annuitize can select from a range of
strategies for withdrawing funds from their plan account. For example, they may withdraw the funds in
a lump sum, request a set of structured periodic distributions, or defer withdrawing the funds until they
are required to do so by the IRS’ required minimum distribution (RMD) regulations. Different plans offer
different withdrawal options. For many DC plan participants, the process of withdrawing funds from a
DC plan is actually a sequence of decisions spread across many years rather than a single payout
decision at the time of retirement. For example, in every year, an individual who has not previously
annuitized can choose to annuitize his or her remaining account balance. This makes it important to
follow retired DC plan participants over several years: they may make different distribution choices at
different points in their retirement experience. The fraction of plan assets that will be annuitized by a
decade after retirement is likely to exceed the fraction annuitized in the first year.
To gain insight on the variation in draw-down decisions, we study participants in TIAA, one of
the largest DC pension plans in the United States. Unlike the 401(k) saving programs at many large
corporations, the TIAA system, which serves the employees of colleges, universities, and other not-for-
profit entities, provides all participants with access to a suite of annuity products. Prior to 1989, most
participants in this system were required to purchase a life annuity at retirement. Since then,
participants have had the option of using lump sum distributions and systematic withdrawals, and their
choices have become more informative about the demand for annuities and other DC draw-down
strategies. The TIAA system was launched a century ago and is the leading retirement income provider
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for employees in the higher education sector; it is a mature DC plan. Many individuals who reached
retirement age in the last two decades contributed to the system for most of their working careers.
In part because of their historically high annuitization rate, the payout choices of TIAA
participants attracted research attention. King (1996) presented information on the choice of single-
versus joint-life annuities during a period when TIAA participants were required to annuitize in the
payout phase. He found that the share of male retirees selecting a one-life annuity had declined from
44% in 1978 to 26% in 1994, with the largest drop taking place when the Retirement Equity Act of 1984
required married retirees to take a two-life annuity unless their spouse signed a waiver. He also found
that the fraction of retirees who retired at age 65 had declined over time. Ameriks (1999, 2002)
updated these findings to the post-1989 period and found substantial interest in non-annuity options,
with many participants deferring taking any distributions until they were required to do so.
The past two decades have witnessed a sharp decline in the fraction of TIAA participants
selecting a life-contingent annuitized payout stream when they begin drawing down their DC account
balance. In 2000, the fraction of those making an initial income draw who did so by purchasing an
annuity was 54%. In 2017, the analogous share was 19%. Over the same period, there was a very sharp
increase – from 9% to 58% - in the fraction of retirees making no withdrawals until the age at which they
needed to begin required minimum distributions (RMDs). These patterns vary significantly before and
after the age at which RMDs are required: of those who make an initial income selection before age 70,
the decline in annuitization rates is much more modest than for those who make this selection at an
older age. For this age group, the fraction of first income selections in the form of single life annuities is
largely unchanged over the period, ranging between 21% and 26%; the fraction initiating joint life
annuities dropped from 31% to 22%. A very different story emerges for those making their first income
selection at age 71 or older. For this group, a high and rising fraction – 54% in 2000, 88% in 2017 --
withdraw only the amount needed to meet the RMD.
This paper begins by documenting the withdrawal behavior of TIAA participants since 2000. It
tracks patterns over time and also documents cross-sectional heterogeneity. After developing a number
of stylized facts about payout behavior, it explores two possible sources of falling annuitization rates.
One is the drop in the long-term nominal interest rate, a key determinant of payout-per-premium dollar
on newly-purchased annuities. The second is delayed retirement and benefit claiming. The average
retirement age of TIAA participants increased during the data sample period, as did the average time
between a participant’s last contribution and first income draw. These forces compound to generate a
rise of nearly five years in the median age at first income draw between 2000 and 2017. This
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development, combined with lower annuitization rates for later income-claimers, can “explain” some of
the observed annuitization decline.
While interest rates and later income claiming appear to correlate with the decline in
annuitization, it is also possible that the drop reflects a general shift in tastes for longevity insurance,
which might extend beyond the TIAA participant population, or a gradual recognition within the TIAA
participant population that annuitization is no longer necessary or the default behavior. These
possibilities are difficult to test using only administrative data on the TIAA participant population.
This study is divided into seven sections. The first describes the administrative data on the
accumulation and distribution choices of TIAA participants and how we construct our sample of retirees
based on a combination of age and contribution status. Section two describes the payout options
available to TIAA participants and how they have changed over time. Section three provides an
overview of the changing patterns of initial distributions over our sample period, and documents the
declining share of participants who are choosing annuities. It also describes how the rates of
annuitization reported in this study compare to those in some previous analyses of the TIAA population.
Section four studies the role of the decline in interest rates in the decline in annuitization behavior. It
presents estimates of a linear probability model relating the choice of payout type to prevailing interest
rates as well as participant-level information. Section five focuses on the retirement patterns of TIAA
participants. It presents age-specific rates of retirement, defined as the age at which contributions to
retirement accounts cease. It notes the potential importance of later retirement in explaining the drop
in overall annuitization rates. Section six addition information on annuity choice, including patterns by
asset balances, on the choice among different types of annuities, for example between joint-life and
single-life annuities, and on the share of participants who choose multiple payout strategies. A brief
conclusion notes that these findings on the determinants of annuity demand and the heterogeneity of
this demand across households have implications for Social Security and private pension plan design.
1. TIAA Participants Near and Beyond Retirement Age, 2000-2017
We analyze participant-level data from the TIAA system for the period 2000-2017. TIAA
maintains administrative records for individual participants and the retirement plans sponsored by the
institutions they work for, so the information on transactions and account balances is better than what
one might find in a household survey. The participant records include tenure in the TIAA system,
contribution data, asset allocation, income distributions, and plan contract information. TIAA does not
have data on retirement dates, either self-reported or administrative, so we combine information about
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age and contribution patterns to create a sample of “likely retired” individuals, for whom the payout
decisions are relevant.
In 2017, there were 1.975 million TIAA participants over age 55, roughly twice as many as there
were in 2000. In this group, slightly more than 292 thousand (14.8%) were receiving payout annuities of
some form. Older participants were more likely to be receiving such a payout than their younger co-
workers. The annuitization rate for those over 75 was about 47%. This study focuses on participants
who have not chosen to annuitize any of their assets as of a given date. In 2017, there were about 1.68
million such participants, 53.5% of whom were between the ages of 55 and 64, and 20.5% of whom
were between 65 and 69. The TIAA participant population is comprised primarily of workers in the non-
profit sector, and includes university faculty and staff, as well as workers at non-profit museums,
hospitals, think tanks, and K-12 education; it is a relatively diverse population. Relative to the broader
population of defined contribution plans, the employers who select TIAA as their plan provider are more
likely to require participation in their pension plan. There are also many small institutions that offer
TIAA retirement plans to their employees.
Although the administrative data set that forms the basis for this project has several strengths, it
also has several limitations. First, we have very limited demographic information. We have reliable data
on age and sex, but not on other demographic characteristics such as marital status and level of
education. Another limitation is that we only have information from a single financial institution. It is
therefore not possible to measure a participant’s net worth, or, for married couples, the total value of
their retirement accounts, because one or both members of the household might have other accounts
at another institution. When we stratify by participant balance, we are thus stratifying by only one
component of household net worth. The lack of information on assets held at other financial
institutions also raises challenges for measuring payout strategies: a participant might pursue one
payout strategy with her TIAA accumulation, and another with an accumulation at another firm.
To study the payout decisions of “retirees,” we focus on TIAA participants who are in the
“retirement zone” – defined as being age 60 or older. We begin the calculation of a retirement hazard
for year t by defining the base (denominator) as the group of participants who made contributions to
their retirement plans in year t. We then calculate the numerator of each group (the number who
“retire”) as the number of people who made no contributions in year t+1 or who stopped contributing
and took an income distribution in year t+1. We do this for each year from 2000 through 2017. Our
panel is unbalanced because new participants enter the sample by reaching age 60 in later calendar
years and because new participants may be brought in if an institutional plan changes to TIAA as its
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record-keeper. Individuals leave the data set when they die, fully distribute their account balance, or
move all of their assets to a financial institution other than TIAA. Our definition of retirement is
imperfect, as an individual who stops working at a non-profit institution in the TIAA system, and takes a
new job at another employer who is outside the system, would be classified as “retired” in our analysis
even though they continue to work and save for retirement elsewhere. For the U.S. population at large,
a substantial fraction – perhaps a third according to Ameriks et al. (2018) – work at a “bridge job” after
leaving their career job and before retirement, we believe that this is less likely for the TIAA participant
population because their career earnings are likely to be higher than average.
Based on this definition, we have 259,325 unique individuals that we estimate retired and took a
first income draw in our 2000-2017 sample period, with both men and women representing 50% of the
sample. The raw number of participants taking a first income draw each year grew substantially over
the sample. There were 7,100 individuals who took some form of income in the year 2000. By 2017,
there were over 28,700. In addition to there being growth in the number, the age composition changes
over the sample. For example, in 2000, only 1,190 of the 7,100 (17%) participants taking a first income
draw were over age 70. In 2017, 66% of those taking a first draw were over age 70. The composition of
the participants who are new income recipients in a given year has shifted substantially over time.
2. Payout Choices Available to TIAA Participants
Prior to 1989, TIAA participants were restricted to taking payouts in the form of a single or joint-
life annuity. Since 1989, participants have a much richer selection of payout options from which to
choose. These include:
Single Life Annuity. This product, available since 1918, provides monthly income for as long as
the insured individual lives. There are also various guarantee options that can be added to the policy in
exchange for a lower monthly payout. For example, a single life annuity with a 10-year period certain
would pay monthly income to the individual or his/her beneficiaries for the first 120 months. Beyond
that, payments would continue if and only if the individual was still living.
Joint Life Annuity. Another life-contingent income stream, the payments of which are linked to
the life of two individuals (e.g., spouses). In addition to also having guarantee period options, annuitants
can also choose whether the payment level stays constant or declines upon the death of one of the
insured lives.
Annuity Certain. Although labeled an annuity, the payouts associated with this option do not
depend on the mortality experience of the participant or any other beneficiaries. Rather, these
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products provide a guaranteed stream of payments for a fixed period, such as 10 or 20 years. In some
cases, the annuity certain can be the fastest way to draw assets out of the TIAA system.
Interest Payment Retirement Option (IPRO). This option, first offered in 1989, allows a
beneficiary to receive the interest income that would be credited to a TIAA traditional annuity each
year, but the principal balance remains intact. The principal is fixed in nominal terms; at some future
date the account holder must convert either to an annuity or to a minimum distribution product.
Systematic Withdrawals and Transfers (SWAT). This option has been offered since 1996 and
allows a participant to make periodic distributions according to a specified plan. The amount of the
payments can be stopped or changed at any time, which makes this a relatively flexible option.
Required Minimum Distribution Option (RMD). In 1991, TIAA introduced the Minimum
Distribution Option as a way of assisting participants in meeting federal distribution requirements. In
2012, the firm introduced the RMD option, which is very similar for purposes of our analysis to the MDO
option. We combine these two payout options. The RMD option pays participants the minimum
amount each year that will satisfy the federal required minimum distribution (RMD) rules. The principal
can be invested in a variable annuity product, with returns linked to equity or real estate market returns,
or in an account that yields a fixed rate of interest.
Transfer Payout Annuity (TPA). First offered in 1991, this is a sequence of payments, spread
over a period of 7 to 10 years, which typically moves funds from a deferred guaranteed fixed annuity,
TIAA Traditional, to some other investment. TPAs can be used for multiple purposes: to move funds to
another investment vehicle, at TIAA or elsewhere, or to make cash payouts to the participant. Because
we are interested in payouts to the individual as income that can be used for consumption, rather than
transfers among funds, we will not include TPA’s in our analysis.
Each year, a participant who has not previously annuitized his or her DC plan balance at TIAA
can choose to annuitize, to elect a non-annuity exhaustive payout plan, or to take only whatever
distribution is required – possibly zero – and to postpone delay further disposition decisions for another
year. Participants over the age of 90 are no longer eligible to make an annuitization election. The delay
option is exercised by many participants, and recognizing its presence is important for several reasons.
First, the gap between “retirement” as we measure it and the start of payouts is often several years.
Studying the behavior of participants only in the year when they reach retirement can provide a
misleading perspective on withdrawal behavior. The longitudinal nature of the TIAA data is critical for
studying this multi-period discrete choice problem, because it allows us to track the delays between the
end of contributions and that start of payouts.
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3. Trends in Payout Choices of New Income Recipients, 2000-2017
Figure 3.1 summarizes the form in which retirees have chosen to take their first income draws
over the sample period. In 2000, a bit over a decade after the end of required annuitization, a majority
of participants (54%) still took their first income draw in the form of a single or joint life annuity. By
2017, there had been a dramatic decline in annuitization to only 19% of the sample. As annuities have
declined, minimum distribution options (MDOs) have become more popular. The MDO was the initial
choice of 9% of those who began distributions in 2000, but of 29% by 2007and an even higher share
after the Great Recession. TIAA introduced a new payout product tied to required minimum
distributions in 2012, and these payouts have grown in popularity since then, reaching 58% in 2017.
Minimum distribution options are now the most popular way to withdraw assets. The decline in
annuitization from 54% to 19% between 2000 and 2017 is the key focus of this paper.
One year, 2009, stands out as anomalous in Figure 3.1. During the global financial crisis,
Congress passed a one-time suspension of the tax provisions requiring distributions. Brown, Poterba,
and Richardson (2018) and Mortenson, Schramm, and Whitten (2019) find that about one third of
households took advantage of the opportunity to delay RMDs. The suspension allowed participants who
were reaching the age at which such distributions usually begin, and who would typically start such
distributions, to postpone them. The distribution holiday led the number of participants taking a first
income distribution of any kind to fall in 2009; this affected the reported percentages.
Figure 3.2 provides a longer-term perspective on the fraction of TIAA participants who chose life
annuities. It draws on data from Ameriks (2002) for the period prior to 2000, when the current analysis
begins. It shows that before the introduction of the IPRO in 1989, all participants received annuitized
payouts. The MDO option was introduced in 1991, and by 1994, the percentage of participants choosing
annuities for their initial payouts had declined to about 80 percent. This fell further after the systematic
withdrawal option (SWAT) was introduced. By 2000, when the current data set begins, the annuitization
rate had fallen below 60%. The downward trend during our sample period thus represents a
continuation of a longer-term trend that began when non-annuity alternatives were first introduced
To account for the constraint associated with required minimum distributions, we divide our
sample of participants into those who are not yet 70, and those who are 70 and older. RMDs “are
minimum amounts that a retirement plan account owner must withdraw annually starting with the year
that he or she reaches 70 ½ years of age or, if later, the year in which he or she retires.” (U.S. Internal
Revenue Service, 2019) Figure 3.3 shows the selection of payout options by those who make their first
income draw before the RMD requirements kick in. The fraction of individuals choosing a single life
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annuity is surprisingly constant over the full sample period, varying from a low 21% to a high of 26%
with no real time pattern. Joint life annuities, on the other hand, declined from 31% in 2000 to under
20% by 2007, where it stayed within a few percentage points thereafter. Most of this difference was
accounted for by the rise in the use of SWAT payments, which are non-life-contingent systematic
withdrawals that can be varied at any time. There is also substitution over this period between Interest
only (IPRO) options and annuity certain options.
Figure 3.4 summarizes distribution behavior for those over age 70. In this group, the decline in
annuitization is very striking, falling from 37% in 2000 to only 6% in 2017. Over this same period, the
use of the RMD option grew from 54% to 88% of the sample. In other words, if someone does not take a
first income withdrawal by the time they reach age 71, seven out of every eight individuals ends up
taking the minimum required distribution as their first withdrawal option.
4. Interest Rates and Annuitization
To explore the factors that might underlie the declining rate of annuitization by TIAA
participants, we consider two other developments that took place during our sample period: falling
nominal interest rates and delayed claiming of income. This section considers the role of interest rates.
The level of nominal interest rates has a direct effect on the monthly income generated by an annuity.
The monthly payout (M) of an actuarially fair annuity is determined by the equation:
(1) 𝑀 = 𝑉 ∗ (∑𝑃𝑡
(1+𝑟)𝑡∞𝑡=1 )−1.
V is the purchase price of the annuity, Pt is the cumulative survival probability to period t, and r is the
nominal interest rate. In the special, and unrealistic, case of a constant mortality rate ρ each year, the
annual payout would be (ρ+r)*V. As the interest rate (r) falls, so does the amount of monthly income
that can be provided by a given account balance.
A decline in nominal interest rates does not just affect the payout on annuities. It affects
nominal payouts on a range of other financial assets. If the change is due to a decline in expected
inflation, the effect on the optimal consumption profile in standard models of household behavior
would be expected to be small. There can be interactions between inflation and net-of-tax returns on
some assets, largely as a result of the taxation of nominal interest and nominal capital gains. By altering
the relative returns on different assets, such effects might alter the household’s optimal portfolio
structure and could impact the demand for annuities, but these effects are likely to be modest. If the
decline in nominal rates is due to a decline in the real interest rate, in contrast, the slope of the optimal
consumption profile would likely change, and with it the amount of annuitized income the household
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would demand. These effects in neoclassical models, however, may significantly understate the impact
of falling nominal rates on annuity demand. A substantial body of empirical evidence suggests that
behavioral factors and framing influence the demand for annuities (see for example Brown (2009),
Brown, Kapteyn, Luttmer, Mitchell, and Samek (2017), and Brown, Kling, Mullainathan, and Wrobel
(2013). The ratio of annuity payout to the initial premium is a highly salient feature when individuals are
considering whether to annuitize. This suggests that the level of nominal payouts on the annuity, rather
than its payout relative to other investment options, may be an important driver of annuity demand.
The nominal interest rate on 10-year Treasury bonds averaged 6.03 percent in 2000. It declined
to 4.63 percent by 2007, and then dropped more sharply, to 1.80 percent by 2012, and remained low –
typically below 2.5 percent – after that. The decline in long-term nominal rates thus coincides with the
decline in annuitization. Figure 4.1 shows the share of first-time income draws accounted for by single-
and joint-life annuities, as well as the annual average nominal interest rate on the 10-year U.S. Treasury
bond. The interest rate and the annuitization rate move together in our sample.
To explore this further, we estimate linear probability models for whether or not the
participant’s first income draw is either a joint life annuity or a single life policy. The controls in this
equation, which is fit to 253,045 observations, include the participant’s TIAA account balance, measured
in constant year 2000 prices, as of the beginning of the year in which they took their first income
distribution, their tenure in the TIAA retirement system, their gender, and indicator variables for the age
at which the participant first took a payout. We allow for separate indicator variables for single years of
age between 59 and 74, and then a 75+ category for all participants who claim income at a later age.
Table 4.1 presents the estimates from this linear probability model. Participants with larger
balances are less likely to annuitize, those who have been TIAA participants are more likely to annuities
– about one percent more for every three years of participation – and women are about 3 percent more
likely to annuitize than men. The key finding with regard to time series variation, however, is the
estimated relationship between the nominal 10-year Treasury yield and the annuitization probability. A
one percentage point increase in the interest rate translates to a five percentage point increase in the
annuitization probability. This suggests that interest rate changes of the magnitude observed in the
2000-2017 sample could have a substantial dampening effect on annuitization rates.
5. Shifting Retirement Patterns of TIAA Participants
The drop in annuitization rates in the last two decades was more pronounced for TIAA
participants who did not begin income withdrawals until age 70 or later than among those who began
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withdrawals in their 60s. In addition, the distribution of age-at-first-claim shifted, and more participants
delayed claiming either because they retired later or because they waited for some time after retiring
before making their first income claim. Between 2000 and 2017, the average age of retirement for male
TIAA participants who were working at age 60 increased by about 1.5 years. For women, the increase
was about a year. Since these labor force participation changes may have contributed to the declining
annuitization rate, this section presents information on the shifts in both retirement ages and post-
retirement claiming delays among the TIAA participant population.
It is important to remember that given the nature of the TIAA participant data, data on
contributions to retirement plans must be used to impute “retirement year” as the year when the
participant ceases to contribute. “Retirement” is the cessation of contributions to the TIAA retirement
system. For most participants this probably corresponds to retirement, at least from their primary job,
but for some it may only reflect separation from a job for which TIAA is the retirement plan provider,
and a transition to another job with different retirement plan coverage.
Figures 5.1 and 5.2 present the hazard rates of retirement for men and women respectively at
ages between 60 and 73 in 2000, 2005, 2010, and 2015. In 2000, for example, 7.7% of 60-year-old men
who were contributing in the prior year stopped contributing to their TIAA account and “retired.” The
blue line in each figure, which corresponds to the 2000 data, shows a more pronounced retirement
spike at age 65 than any subsequent year. These hazard rates peak at age 65 at 26.4% for men and
22.6% for women. By 2010, in contrast, the hazard rates at age 65 had fallen to 18.7% for men and
17.7% for women.
Although the hazard rates at each age do not fall monotonically over time, the hazard rates for
2000 are generally higher than those for the subsequent years. Retirement rates in 2010, a year right
after the Great Recession when retirement rates for older workers were generally depressed, in part
reflecting lower retirement preparedness on account of asset price declines, were lower than those in
any of the other years. The cumulative effect of the changing age-specific retirement hazard rates can
be seen in Figure 5.3, which plots the average retirement age by year in our sample separately for men
and women. For women, the average age at retirement was roughly 64.5 years from 2000 through
2008. Over the next decade, it rose to about 66. For men, the increase is even more dramatic, rising
from just over 65 years in 2000 to nearly 67.5 in 2017. These patterns resemble those for the broader
U.S. population, although the estimated average retirement ages in the TIAA system have been and
continue to be higher than economy wide averages. Munnell (2017) estimates average retirement ages
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using the Current Population Survey. She finds a trend toward higher ages, but lower averages: 62.3 for
women and 64.6 for men in 2015, for example.
The hazard rate data in Figures 5.1 and 5.2 can be used to calculate the change in the probability
that a TIAA participant who is contributing to a retirement plan at age 60 will still be “working,” i.e.
contributing to a TIAA-administered retirement account, at later ages, and in particular at age 70. In
2000, for a male TIAA participant who, as he aged, faced the age-specific retirement probabilities that
we measure in the 2000 cross-section, the probability of working until at least age 70 is 19.8%. The
same calculation for a male TIAA participant in 2015, using the age-specific retirement hazard rates that
year, was 25.2%, roughly one-quarter higher. Using the 2010 retirement hazard rates, the probability of
still working at age 70 was even higher, 30.3%. This reflects an increase in the 2010-15 period in the
probability of retirement in the late 60s, which makes it possible for the average age of retirement to
have increased from 2010 to 2015, while the probability of working to at least age 70 also increased.
To place the changing probability of working until at least age 70 in context, the data in Figures
3.3 and 3.4 show that in 2017, the probability that a participant who claims income before age 70
annuitizes is 47 percent, compared with 6 percent for those who claim income after age 70. A five
percentage point increase in the share of participants claiming after age 70 would therefore translate
into a two percentage point drop in the overall share of annuitants – a relatively modest contribution.
One of the important discoveries from the TIAA administrative data is that there are often multi-
year gaps between the age at which a participant stops contributing, or “retires,” and the age at which
income draws begin. Figure 5.4 presents information on the number of years that elapse, for 65-year-
old retirees in each year, between the year of last contribution and the year of initial income draw. An
income draw can be an RMD, an annuity payment, the start of an annuity certain payout, or any other
draw-down of the account balance. The rightmost column shows that of those who “retired” in 2017,
more than 70% did not take any income draws in the next two years. For those who retired in 2013,
more than half had not taken any income by the end of our sample period. Even among those who
“retired” in 2005, more than one third had not yet drawn any income. Some might ask how this is
possible given the minimum distribution rules that apply after age 70 ½; since they apply to the
aggregation of 403(b) holdings, and not on an account-by-account basis, it is possible that those who
have not taken any income draws are taking distributions from other 403(b) accounts and thereby
satisfying the RMD rules without taking distributions from TIAA.
The importance of age at first income draw in affecting the probability of annuitization is
reflected in the coefficients on the age-specific variables in the linear probability model of Table 4.1.
12
The last two columns of that table show the distribution of participants, by age, in two years: 2000 and
2017. We can calculate the “effect” of later claiming on annuitization rates by multiplying the
coefficient on each age-specific indicator variable by the difference in the share of participants in each
age group between 2000 and 2017. The result, driven largely by the increase in claimants over the age
of 70 in 2017 relative to 2000, is a decline of 0.139 in the probability of annuitization. This suggests that
the changing age pattern may be an important factor in the observed decline.
The striking divergence between our estimate of the date of retirement, and the date at which
income draws begin, is a topic that warrants further exploration with richer data than the administrative
data we analyze. There are a number of potential explanations. One is an artifact of the data we study:
the year we label “retirement” may not be the participant’s last year in the labor force. If the
participant works for several more years, but does not contribute to a TIAA retirement plan account,
decisions about income draws may still be made at retirement, but our approach will not capture this. A
second possibility is that the measured gap is real, and that the participant is collecting additional
information before making a decision about annuitization or other forms of retirement account draw-
down. Participants might be coordinating retirement payout decisions with a spouse, waiting to learn
about other retirement benefits that they may be entitled to, or trying to estimate their annual spending
needs in retirement. For some of these purposes, gathering information by learning about their
experience in the first few years of retirement can be helpful.
A third possibility is that the participants who delay before making a decision about how to draw
down their retirement balances are simply procrastinating, taking time to file the necessary paperwork
to begin annuity payouts or start other income draws. In this case, there might be opportunities to
improve participant welfare by providing more education about payout options, reducing the burdens of
filing for payouts, or creating default options. It is important to remember in discussing the potential
welfare effects of different withdrawal strategies that payouts from a plan do not necessarily translate
into consumption, especially for wealthier individuals who have assets outside their DC plan that can
support retirement consumption. For wealthier households, plan withdrawals are more likely to affect
the timing of their taxes, and the fees that they pay on their overall investment portfolio, than the
profile of their consumption spending.
The last two potential explanations for gaps between retirement and the start of income draws
have different implications for the attractiveness of “one size fits all” policies that automatically
annuitize participants’ DC plan balances at retirement. If retirees have limited demand for annuities, and
take time after retirement to assess the set of risks that they face and the relative attractiveness of
13
annuitizing, payout strategies that do not provide longevity insurance, and deferring income
withdrawals, then “auto-annuitization” provisions at retirement may reduce retiree welfare.
6. Additional Evidence on Annuitization Behavior
The TIAA administrative data provide a wealth of information on details of the payout choices
made by participants. In this section we summarize the data on three issues: the relationship between
account balance and annuitization behavior, the choice between single life and joint life annuities, and
the role of multiple payout strategies.
Figure 6.1 presents annuitization patterns in 2015 by account balance decile. Focusing on the
life annuity figures (which includes both single and joint life annuities), we can see an inverted U-shape
across the deciles. In the bottom decile, only 19% of individuals take their first distribution in the form
of a life contingent annuity. Annuitization rates peak at the 3rd through 5th decile, reaching as high as
38%. Annuitization rates then fall with account balance, falling all the way to only 11% in the top decile.
In the linear probability model specification of Table 4.1, the negative effect of balance on annuitization
rate dominates. The information in Figure 6.1 pertains only to the probability of annuitization, not the
fraction of the account balance that is annuitized. The fraction tends to decline as the balance
increases, at least for most of the distribution.
Most of the discussion of payout choices in retirement plans proceeds as if the choice facing
retirees is between an annuity and a lump sum distribution, and as though retirees will choose one form
of payout structure. In practice, the annuity choices facing retirement plan participants are often much
more complicated. In addition, a small but significant set of participants choose a combination of
payout strategies in drawing down their retirement wealth. This section presents information on the
choices of TIAA participants, beginning with the choice between single-life and joint-life annuities, and
then presenting information on the complex nature of many payout strategies.
The choice between joint life vs. single life annuities is of interest not just because it highlights
the multiple payout strategies available, even with the annuity space, but because it can also shed light
on the potential role of interest rate variation in affecting payout choices. The expected duration of
payouts on a joint and survivor (J&S) life annuity is longer than that for a single life annuity. The same
statement is true for annuities with a fixed number of years of certain payouts in comparison with
annuities with no guarantee period. When interest rates decline, the cost of purchasing longer-duration
retirement products rises by comparison to shorter-duration products. A shift away from J&S annuities
14
and toward single life annuities would therefore be consistent with interest rate variation playing a part
in the demand for annuity products.
The last two decades have seen a shift away from J&S annuities and toward single-life products
among TIAA participants. In 2000, the data reported in Figure 3.1 show that 54 percent of those
choosing a life-contingent payout chose a joint life annuity. That fraction declined to 47 percent in
2017, with a greater decline among male participants than among women. There has also been a trend
away from selecting guarantee periods for those who choose joint life annuities, and toward choosing
guarantee periods for single-life annuitants. Men are less likely to choose single life annuities than
women: in 2016, 71% of women and 37% of men selecting annuities chose single-life annuities.
We also find that a limited number of participants choose multiple payout strategies. In 2016,
88% of participants were receiving distributions had selected only one payout strategy. Another ten
percent had selected two strategies. The two most common combinations are a minimum distribution
payout and an additional cash distribution, a combination that was selected by 2.3% of the participants-
in-distribution, and a combination of a joint life annuity payout and a payout from minimum distribution
contract, which was selected by 1.9% of the participants. In both cases, the minimum distribution
option plays a role, suggesting that these participants are interested in preserving the value of their DC
plan account for late-life consumption or for a bequest. This heterogeneity is a reminder that for a non-
trivial minority of participants, payoff strategies that involve a combination of annuity income and
periodic cash payments are attractive. The importance of MDO/RMD strategies also suggests that for
those who do not choose annuities, the RMD requirements loom large in their distribution planning.
7. Conclusion
This paper summarizes the changes over time in the choices that TIAA participants make with
regard to the distributions from their retirement accounts. Unlike many defined contribution systems,
the TIAA system offers annuities to all participants. Until 1989, participants were required to annuitize.
In the three decades since that constraint was removed, the fraction of participants choosing annuities
has trended downward, and today, only a minority elect to annuitize their payouts. A combination of
cash payout strategies, particularly strategies focused on making required minimum distributions each
year, have grown in popularity. This paper examines two factors that may have contributed to this
decline, and tries to assess their relative importance. Both declining nominal interest rates, which lower
the ratio of annuity payouts relative to the account balance that is annuitized, and rising ages at which
15
TIAA participants initially begin to draw income from their accounts, appear related to the decline in
annuity demand.
Estimates from a linear probability model for choosing an annuity, estimated using data on all
TIAA participants over the age of 60 who stopped contributing to their pension accounts between 2000
and 2017, suggests that the drop in nominal interest rates over this period could account for a decline of
about 19 percent in the probability of annuitization. The shift to taking first income draws at later ages
could account for another 14 percent decline. Together, these two factors account for most of the 35
percentage point decline in annuitization rates in our sample.
The finding that most participants in the TIAA system, even when confronted with an easily-
accessible annuity option provided by the plan provider, choose not to annuitize their retirement
balances has a number of potential implications for Social Security policy design and for the operation of
defined contribution pension systems in both the public and private sectors. For many individuals, the
annuity provided by Social Security is not sufficient to cover all basic needs. As DC plans become the
primary retirement saving vehicle for private sector workers, the rate at which DC plan participants
decide to remove assets from their DC plan accounts, and whether they opt to protect themselves
against longevity risk by purchasing an annuity, will play an important part in determining late-life
financial security. Our findings suggest that there is substantial heterogeneity across households in their
demand for annuitization.
Several public policies adopted in the last decade have provided greater flexibility to retirees
with regard to their selection of payout options, in particular the partial or gradual annuitization of
retirement accumulations. These policies were designed, at least in part, to encourage the selection of
annuity payouts. Beshears, Choi, Laibson, Madrian and Zeldes (2014) surveyed 401(k) participants and
found that "allowing individuals to annuitize a fraction of their wealth increases annuitization relative to
a situation where annuitization is an "all or nothing" decision." Theoretical work on the optimal
structure of retirement payouts also points to the attraction of partial annuitization. Horneff, Maurer,
and Stamos (2008) find that when consumers have Epstein-Zin preferences and face substantial
heterogeneity in future mortality, the optimal strategy for selecting retirement payouts involves gradual
annuitization in response to new information during the retirement period. The same finding could
emerge from a different source if there are fluctuations in the prices at which annuities are available,
but potential annuity buyers cannot insure against fluctuations in long-term interest rates and other
factors that determine retail annuity rates. These individuals may benefit from annuitizing only part of
16
their DC plan accumulation at the point of retirement, while holding other assets as “dry powder” to
deploy in the event of decline in the relative price of annuities.
It is important to remember that the decision not to annuitize assets at retirement does not
mean that an individual will exhaust their resources if they live an unexpectedly long life, and it does not
imply a failure of consumer optimization. Theoretical results on the welfare gains from purchasing
annuities, such as those in Mitchell, Poterba, Warshawsky, and Brown (1999), typically apply in settings
without a baseline annuity such as that provided by Social Security. The decision not to annuitize,
however, may have implications for the time path of post-retirement consumption, and it may in
particular lead retirees to reduce their spending in the early years of retirement to preserve a savings
cushion for later years. This implies that the tax and regulatory environment governing post-retirement
draw-down of DC plan balances can affect both withdrawal behavior from pension accounts and the
shape of the optimal intertemporal consumption path.
17
References
Ameriks, John. 1999. “The Retirement Patterns and Annuitization Decisions of a Cohort of TIAA-CREF
Participants.” Research Dialogues: Issue #60. New York: TIAA.
Ameriks, John. 2002. “Recent Trends in the Selection of Retirement Income Streams among TIAA-CREF
Participants.” Research Dialogues: Issue #74. New York: TIAA.
Ameriks, John, Joseph Briggs, Andrew Caplin, Minjoon Lee, Matthew Shapiro, and Christopher Tonetti.
2018. “Shocks and Transitions from Career Jobs to Bridge Jobs and Retirement: A New
Approach,” mimeo, Michigan Retirement Research Center.
Beshears, John, James Choi, David Laibson, Brigitte Madrian, and Stephen Zeldes. 2014. “What Makes
Annuitization More Appealing?” Journal of Public Economics 116, 2-16.
Brown, Jeffrey R. 2009. “Understanding the Role of Annuities in Retirement Planning.” In Annamaria
Lusardi, ed., Overcoming the Savings Slump: How to Increase the Effectiveness of Financial
Education and Saving Programs. Chicago: University of Chicago Press, 178-206.
Brown, Jeffrey R., Arie Kapteyn, Erzo F. P. Luttmer, Olivia S. Mitchell, and Anya Samek. 2017.
“Behavioral Impediments to Valuing Annuities: Evidence on the Effects of Complexity and Choice
Bracketing.” NBER Working Paper 24101.
Brown, Jeffrey R., Jeffrey R. Kling, Sendhil Mullainathan, and Marian V. Wrobel. 2013. "Framing Lifetime
Income," Journal of Retirement 1, 27-37.
Brown, Jeffrey R., James Poterba, and David Richardson. 2017. “Do Required Minimum Distributions
Matter? The Effect of the 2009 Holiday on Retirement Plan Distributions.” Journal of Public
Economics 151, 96-109.
Horneff, Wolfram, Raimond Maurer, and Michael J. Stamos. 2008. “Optimal Dynamic Annuitization:
Quantifying the Cost of Switching to an Annuity.” Journal of Risk and Insurance.
King, Francis P. 1996. “Trends in the Selection of TIAA-CREF Life-Annuity Income Options, 1978-1994.”
Research Dialogues: Issue #48. New York: TIAA.
Mitchell, Olivia S., James M. Poterba, Mark Warshawsky, and Jeffrey R. Brown. 1999. “New Evidence on
the Money’s Worth of Individual Annuities.” American Economic Review. 89 (December), 1299-
1318.
Munnell, Alicia H. (2015). “The Average Retirement Age: An Update.” Issue in Brief 15-4. Chestnut Hill,
MA: Center for Retirement Research at Boston College.
Munnell, Alicia H. (2017). “Why the Average Retirement Age is Rising.” (October 15). New York, NY:
Market Watch
Mortenson, Jacob, Heidi Schramm, and Andrew Whitten. 2019. “The Effect of Required Minimum
Distribution Rules on Withdrawals from Traditional IRAs.” National Tax Journal 72, 507-542.
18
U.S. Internal Revenue Service. 2019. Retirement Plan and IRA Required Minimum Distribution FAQs.
Available at https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-
minimum-distributions
Vanguard. 2017. How America Saves 2017. Malvern, PA: Vanguard.
19
Figure 3.1: Income Choices of TIAA Participants, 2000-2017
Figure 3.2: Longer-Term Perspective on Annuitization
25 22 22 22 21 21 18 16 15 20 12 14 14 14 13 12 13 10
29 26 24 24 23 21
17 14 13
16
10 11 11 11 10 9 11 9
1 2
2 2 3 3
4 5 5
9
6 8 8 8 7
6 5
4
12 15
16 14 13 12
11 9 8
10
4 4 4 4
4 3 3
2
24 23 22 20 22 22
25 27
27
33
23 24 24
22 22
20 20
16
9 12 15 18 19 20 24 29 31
11
43 39 37 42 44 50 49
58
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Single Life Joint Life Ann Certain IPRO SWAT RMD
20
Figure 3.3: Income Choices of TIAA Participants under Age 70, 2000-17
Figure 3.4: Income Choices of TIAA Participants over Age 70, 2000-17
26 25 25 26 25 26 23 22 21 22 22 22 23 24 23 23 25 25
31 28 26 28 27 25
22 19 19 18 18 19 18 19 18 19 21 22
1 2 2
3 3 4 6
7 7 11 11 12 13 13 12 12 10 9
15 18 21 19 18 17 16
14 14 14 9 9 8 8 8 8 6 5
27 27 26 24 27 28 33 37 38 36 40 39 38 36 39 39 38 39
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Single Life Joint Life Ann Certain IPRO SWAT
18 13 12 13 11 10 8 6 6 13
4 5 5 5 5 4 5 3
19 18
15 12 11 10 7 5 4
12
4 4 4 4 4 3 3 3
1 1
1 1 2 2 2
2 2
6
2 3 3 3 3 2 2 2
8 10
9 8 9 10
11 11 11
26
9 8 10 9 8 7 6
5
54 58 63 66 67 68 73 76 77
45
81 80 78 79 80 84 84 88
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Single Life Joint Life Ann Certain SWAT RMD
21
Figure 4.1: 10-Year Treasury Interest Rate and Probability of Annuity as First Draw
0
10
20
30
40
50
60
70
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Annuitization Fraction 10 Year Treasury Yield * 10
22
Table 4.1: Probability that TIAA Participant’s First Income Draw is an Annuitized Income Stream
Variable Coefficient Estimate (Standard Error)
Mean Value in 2017 Mean Value in 2000
Participant Balance ($M)
-0.1373 (0.0023)
0.539 0.303
Years of Participation in TIAA System
0.0033 (0.0001)
25.1 23.5
Female 0.0335 (0.0017)
0.548 0.396
10-Year Treasury Rate 0.050 (0.0008)
2.33 6.03
Age = 56 -0.0139 (0.031) 0 0.005
Age = 57 -0.0463 (0.028) 0 0.014
Age = 58 0.0012 (0.028) 0 0.009
Age = 59 0.1287 (0.023) 0.003 0.037
Age = 60 0.1742 (0.022) 0.011 0.063
Age = 61 0.2171 (0.022) 0.013 0.065
Age = 62 0.3165 (0.022) 0.031 0.145
Age = 63 0.2694 (0.022) 0.026 0.077
Age = 64 0.2783 (0.022) 0.031 0.079
Age = 65 0.3536 (0.022) 0.053 0.157
Age = 66 0.3321 (0.022) 0.058 0.060
Age = 67 0.2986 (0.022) 0.040 0.042
Age = 68 0.2937 (0.022) 0.033 0.039
Age = 69 0.3053 (0.022) 0.034 0.034
Age = 70 -0.0332 (0.022) 0.303 0.064
Age = 71 -0.0620 (0.022) 0.122 0.041
Age = 72 -0.0218 (0.022) 0.0521 0.020
Age = 73 0.0014 (0.022) 0.040 0.014
Age = 74 0.0162 (0.022) 0.035 0.012
Age > 74 0.0059 (0.022) 0.114 0.016
Constant -0.057 (0.022) 1.0 1.0
23
Figure 5.1: Retirement Hazard for Male TIAA Participants by Cohort
Figure 5.2: Retirement Hazard for Female TIAA Participants by Cohort
0%
5%
10%
15%
20%
25%
30%
60 61 62 63 64 65 66 67 68 69 70 71 72 73+
M2000
M2005
M2010
M2015
0%
5%
10%
15%
20%
25%
30%
60 61 62 63 64 65 66 67 68 69 70 71 72 73+
W2000
W2005
W2010
W2015
24
Figure 5.3: Average Retirement Age of TIAA Participants Who Contributed at Age 60, 2000-2017
Figure 5.4 Years from Retirement to First Income Draw, 65-Year-Old Retirees in Various Years
63.0
63.5
64.0
64.5
65.0
65.5
66.0
66.5
67.0
67.5
68.0
Women
Men
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
< 0
0 - 1
1 - 2
2 - 3
3 - 4
4 - 5
5+
25
Figure 6.1: Probability of Annuitization by Size of TIAA Account Balance
Account balances are measured at beginning of year of “retirement”. A participant is categorized as an annuitant if he or she takes a life annuity or annuity certain at any point in the future.
19%
33%
37% 38% 36%34%
29%
25%
18%
11%
17%
12%
7%6%
5%
4%
4%
3%
3%
2%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1 2 3 4 5 6 7 8 9 10
Asset Decile
Life Annuity
Annuity Certain